Mid-March 2013 Blog Update of THE GREAT DEPRESSION of DEBT

Note that my new novel “The Child Remover” is now available on Amazon as both a paperback and in a Kindle version.

CAN YOU HEAR THE MOBS PUSHING THE GUILLOTINES INTO THE STREETS?

Okay, maybe not yet. But there is bound to be some reaction by the resulting “sans-culottesas” if we continue to reduce the amount of wealth held by the common man. Here are the recent percentages of US total net worth held by US “citizens” in the lower economic 80% (from an article by Domhoff, “Wealth, Income, and Power”):

1983 18.7%

1989 16.5%

1992 16.2%

1995 16.1%

1998 16.6%

2001 15.6%

2004 15.3%

2007 15.0%

2010 11.1%

The situation is even worse for those in the lowest 50%. They have gone from having 3.6% of total US net worth in 1995 to 1.1% in 2010 (per the Congressional Research Service). Among countries with at least a quarter-million adults, only Russia, Ukraine, and Lebanon are more unequal, according to Credit Suisse Research. We have taken the lower 50% of people out of the American Dream. What do parents in this group tell their kids, to “Work hard so you can buy the wealthiest a few more houses or Picasso paintings?”

I don’t know what percentage of this drop in common-man-wealth is due to tax loopholes, change of tax structure, reduced taxes on corporations, or whatever. But I suspect that the drop is NOT because the top 20% are smarter and working harder than they were thirty years ago, or that the lower 80% have become lazier. I also know that history tells us that if you get enough have-nots, they eventually demand what they perceive of as their fair share, and they back up their demands with violence.

If the top 20% were truly smart, they would be reducing this wealth transfer for their own survival and well-being. Even if the “haves” all buy assault rifles for protection, those without wealth will have even more of these weapons and truly know how to use them. In my opinion, the only thing that has stopped some degree of public rebellion already is the lack of a charismatic leader of the poor.

There are those in the high wealth category, like Warren Buffet, who are bringing attention to this issue. But they seem to be outnumbered by those wealthy who are buying windup politicians with limited abilities who only know how to say “no new taxes.”

MORE ARTICLES ON US ENERGY INDEPENDENCE AND RELATED ADDED JOBS

USA Today, October 23, 2012

“IHS says the oil and gas drilling boom, which already supports 1.7 million jobs, will lead to the creation of 1.3 million jobs across the U.S. economy by the end of the decade.”

“It’s the most important change to the economy since the advent of personal computers pushed up productivity in the 1990s,” says economist Philip Verleger, a visiting fellow at the Peterson Institute of International Economics.”

“The major factor driving domestic production higher is a newfound ability to squeeze oil out of rock once thought too difficult and expensive to tap. Drillers have learned to drill horizontally into long, thin seams of shale and other rock that holds oil, instead of searching for rare underground pools of hydrocarbons that have accumulated over millions of years.”

CNBC, February 11, 2013

US Is on Fast-Track to Energy Independence: Study

“U.S. oil and gas production is evolving so rapidly—and demand is dropping so quickly—that in just five years the U.S. could no longer need to buy oil from any source but Canada, according Citigroup’s global head of commodities research.”

“Citigroup’s Edward Morse, in a new report, projects a dramatic reshaping of the global energy industry, where the U.S., in a matter of years, becomes an exporter of energy, instead of one of the biggest importers.”

“Crude oil generated the largest single annual increase in liquids production in U.S. history last year, with an increase of 1.16 million barrels per day. Oil production is booming in places like Texas and North Dakota, which has the lowest unemployment in the country at just 3 percent last September, compared to the national rate of 7.8 percent then.”

“At the same time, Citi sees a big impact on the U.S. economy. The current account deficit is about 3.2 percent of GDP, and the oil import bill is 1.7 percent of GDP. Citi expects that energy self-sufficiency, combined with the impact of low natural gas prices, could cut the current account deficit by up to 2.4 percent of GDP.”

“The Citi report, titled “Energy 2020: Independence Day,” also projects a larger and quicker decline in demand for oil in the U.S. over the next decade or two, due to efficiency and the shift to cheaper natural gas. For instance, Citi expects 30 percent of the U.S. heavy duty truck fleet to turn to natural gas-based fuel by 2015. That would reduce diesel demand by an estimated 600,000 barrels per day. It also expects new automotive efficiency standards to reduce U.S. oil production by two million barrels per day.”

REUTERS, March 13, 2013

“Exxon Mobil Corp expects oil and natural gas production in North America to rise 45 percent over the three decades to 2040, boosted by output from U.S. shale formations, Canadian oil sands projects and the Gulf of Mexico.”

“The company sees U.S. energy consumption falling about 5 percent from 2010 to 2040, driven by efficiency gains in the transportation sector.”

“The combination of rising output and slowing demand should lead to North America becoming a net energy exporter by about 2025, Exxon said.”

HOW DOES THIS ENERGY EXPLOSION TIE IN WITH THE SEQUESTER?

It doesn’t! Rather than dynamically including this economic growth opportunity in future budgeting, including its likely benefit in reducing our deficits, Republicans are emphasizing immediately cutting back dramatically and the Democrats want to blindly move forward with little thought on how we will pay for current or future programs.

THE COST OF FOOLISH WARS

Almost unspoken in the current budget debates is what we have wasted on foolish wars. We want to reduce teachers, social programs, Medicare, and so on, but Congress doesn’t want to discuss how much we have wasted on our silly military excursions. Yet a March 14, 2013 article in Reuters show that the total cost of the war in Iraq, besides the sad loss of lives, could grow to more than $6 trillion dollars. Not only aren’t the costs mentioned, but some of those most ardent Senators on our needing to reduce our deficit (like Lindsey Graham and John McCain) harassed Chuck Hagel, the new Secretary of Defense, in his confirmation hearings. He was harassed because he was one of the few voting against the Iraq war. In a fair and just world, Graham and McCain would be apologizing to Hagel! Perhaps in the remaining Obama presidency there will be more restraint before we spend lives and dollars on foolish wars.

SO, WHAT SHOULD WE BE DOING?

Tax laws, loopholes, and so on for wealthy Americans and corporations should be changed such that the wealth disparity is reduced. Not eliminated (socialism), just reduced. Stop pushing for severe austerity which will devastate our country. Instead, invest in and encourage growth of businesses that can gain from an abundance of energy that the US is about to experience. Use the related direct and indirect job growth, and the resultant increased tax income, and the increased taxes from wealthy individuals and corporations, to reduce our deficit.

THE STOCK MARKET NUMBERS

The Price/Dividend (P/D) ratio for the S&P 500 is now 49.5. The current P/D of 49.5 can be compared to the historical median P/D of 26 and the 17.2 target I use to get back into the market. At current dividends, the market will have to drop 48% to get down to its median P/D and drop 65% to get to my own entry target P/D. `

Do not interpret the P/D ratio as a predictor of the direction of the economy. It is a historical unemotional measure that I believe reflects whether the market is overpriced. The P/D ratio can stay very high for many years with little rationale, as it has since the nineties.

Here is where I get my P/D ratios. http://www.indexarb.com/dividendYieldSortedsp.html. Go to the bottom of the table and read the value opposite “Average Dividend Yield (%) of All S&P 500 Stocks.” Take the inverse of this number X 100 to get the price/dividend.

As always, people should use their own judgment/data to affect their own investment strategies; and they should not blindly use the above information. Intelligent people can, and do, disagree.

31 Responses to “Mid-March 2013 Blog Update of THE GREAT DEPRESSION of DEBT”

Hi Warren, I’m glad you’re still writing. I have a couple of comments. Austerity (and the sequestration) are not about the budget, not really. They’re about punishment. If you look at where the bulk of the austerity/balanced budget folks are from, you’ll find them in the Bible Belt. This is an example of what I call Social Calvinism. It’s the idea that one’s lot in life is preordained, and that if you are not doing well, well that’s because it’s obviously your own fault. And if you are it’s because you are one of the chosen or elect.
And since things were not going so well for our country, it has to be someone’s fault, and of course it’s not the fault of the “elect” since they have “proven” their worth by the simple fact of their personal prosperity. So it’s the fault of the 99 percent, and they must be punished. Thus austerity.
Until the people who elect the teapartiers move away from this mindset, we will not see any meaningful action on the economy. Until they realize that they are NOT going to be one of the uberwealthy, win the lottery, or in any other way become one of the one percent things will not change. They don’t realize that they are punishing themselves.

Consider the global one quadrillion dollar equivalent macroeconomic system defined by the totality of its assets and its offsetting countervailing debt, the latter of which is also a counterparty asset.

At the base of the macro system are the majority of citizens who by birth represent the nontransgenerational wealth recipients. Their success and well being in the system depends on their ability to trade their labor, intellectual abilities and innovations, and services for the demands within the system.

The naked birth citizens exchange their wares for currency for day to day living and for relatively large amounts of debt denominated in a collateralized large amount of their future services to forwardly consume major items such as vehicles and homes.

Meanwhile wealth denominated mostly by 1’s and 0’s in computer accounts is accumulated and more and more concentrated by a silver spoon transgenerational wealthy small group who own most of rental property, hard asset’s, and system’s debt, the latter of which is their favored counterparty ‘sure’ asset with the compounding arithmetical property of exponential growth. And they own and control the state and federal legislators who write the sustaining wealth laws.

The system works reasonably well during cyclical periods of falling interest rates when there is appreciation of the citizen’s chief asset, his home, via associated inflation; when there is sufficient demand in the citizen’s ‘real’ economy to provide work opportunity to repay debt and further forwardly consume; and more generally when there is a sense of fairness that the currency is ultimately valued and denominated in the nontransgenerationally wealthy citizen work, services, and innovations.

The competing easier way to make computer account based 1’s and 0’s – exactly equivalent the value of citizen real work, societally useful products, and services – is thru the derivative markets, the stock, commodity, currency, the debt exchanges, and through the fractional reserve banking system. The financial industry operates this game which ultimately involves moving and trading 1’s and 0’s in an electronic account.

Not only has this non Glass Steagall Wall Street economy become much larger than the citizen economy, dollar trading alone churning over 300 % of the US GDP; it has had a direct malignant effect on the real citizen economy.

Board members of large US industries; formerly real product focused, R and D engineering focused, growing focused, and nationalistically US citizen employing focused have redirected their 1950’s-80’s attention to the day to day worth of their stock-holder shares, to the financial derivative and debt business, and to personal gains with bloated disproportional annual salaries, bonuses, and retirement stock options – directly emulating and competing with financial industry CEO’s.

A failure mode and effect analysis of this type of concentrating wealth asset-debt macro system – using history replete with concrete examples – shows that it will naturally proceed to a time window of system nonlinearity as overvalued derivative stock and commodity assets even in a ZIRP environment – will inevitably and deterministically undergo valuation collapse after the population of willing ‘speculator-investors have been completely consumed at the peak of the asset bubble valuation, as debt that cannot be repaid will undergo default, and that demand in the citizen based forward consumption economy undergoes collapse during the asset-debt system’s subsequent general asset price devaluation.

The guillotine and the Napoleonic wars, the green back and the civil war, and the death camps and War World War 2 were all natural consequences timed after the nonlinearities marking the end of major credit cycles.

From my End-of-January update: “One of the reasons that TIP has been so successful is that interest rates have been falling, making older TIPs more valuable because they had a higher base interest rate. Once interest rates start to rise, the opposite effect will occur, so the ETF TIP may not be such a good investment at that point. Since the Fed has committed to keep interest rates low for the foreseeable future, this is not an immediate issue.”

NaluGirl says: “Austerity (and the sequestration) are not about the budget, not really. They’re about punishment. If you look at where the bulk of the austerity/balanced budget folks are from, you’ll find them in the Bible Belt. This is an example of what I call Social Calvinism.”

There certainly does seem to be a lot of religious right beliefs common among those fighting for extreme austerity. It does not seem coincidental that those same people are so adamant against abortion, gays, and other areas that would normally be considered independent subjects for deliberation. But since all related issues seem to be grouped under the biblical umbrella, it makes any compromise on a single area almost impossible. After all, who wants to stand up against what they believe is God’s Word!

In support of your Social Calvinism theory, I ask anyone, Republican, Democrat, Tea Party Member, and so on, to tell me why the huge flow of assets to the wealthy few (which is made worse by the sequester) is not a dangerous trend for the well-being of this country (not to mention the morality of it). I don’t think that there can be a logical answer to my challenge. So what is left is religious justification, which never has to be proved logically.

There he states that the government has over 300% money sitting in reserves that has not even hit the markets yet. When the dam finally breaks , and that money hits, he claims we will have massive inflation!!

Some examples would be, 50% unemployment, and 100% inflation. Not shocking he says would be $30-$50 a gallon gasoline. He’s claiming it could happen by the end of this year, or no later than 2015.

What percentage of the common man’s loss of wealth is attributable to tax structure and tax loopholes?

According to what I can find on the Internet, there are 13,458 pages of US tax code. These are tax loopholes. No politician seriously talks about reforming the tax system.
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The great transfer of wealth began under Ronald Reagan’s presidency. The highest tax rates were reduced and we began to hear about “supply-side economics” and (pejorative term) “trickle down economics.” While this approach appeared to work, the wealthiest individuals and corporations amassed wealth more quickly than middle class strata. (I somewhat admired Ronald Reagan.)
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I recently searched the Internet for “evidence of market manipulation.” I was stunned by what I discovered. I may try to publish my notes as a webpage.
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Economic depression appears to be one mechanism for aggregating wealth to a smaller percentage of the population. I think there may have been a depression that reached its greatest depth in March 2008. It was a modern day high-speed depression, mitigated by fast computers and quick policy decisions
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Can you hear the mobs pushing the guillotines into the streets? Possibly. But guillotines are no match for unmanned aerial vehicles. The next proletariat uprising may be as short-lived as the last depression.
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A few ancillary issues (below) that can be skipped or deleted:

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The dumbing down of the American school system appears to have begun in earnest under Ronald Reagan’s first term:

Machine Design published an article about how a lack of knowledgeable old timers in engineering departments may discourage young engineers from staying in the profession. The conditions…described in “The Case of the Hollowed-Out Engineering Department” (Sept. 9, 2010) seem to be widespread…
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Outsourcing jobs has the effect of destroying “tribal knowledge,” which effectively ends transfer of specialized skills from one generation to the next.
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Your comment: “If the top 20% were truly smart, they would be reducing this wealth transfer for their own survival and well-being.” The next transfer of wealth will occur from the lower 80% of the upper 20% (16%) to the upper 20% of the upper 20% (4%), and likely continue. If any of us chooses to get involved in any way—now is a good time.
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Oligarchy is a characteristic of socialism. The concentration of wealth to a small percentage of the population will define a socialist/fascist state.

“Everything within the state, nothing outside the state, nothing against the state.” –Benito Mussolini
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Depending on which statistics you use around 1% of the general population are millionaries compared to 50% of congress.

I can agree that the wealth is unbalanced but why would anyone believe that the current millionaires of BOTH parties would change the code so that they have less wealth. When the Democrats controled both congress and the white house they succeeded in passing Obamocare which is certainly a tax increase. The Minnesota senators now want to change Obamocare so that the medical equipment firms (that just happen to be in Minn.) aren’t adventently effected by the new taxes. Totally in their self interest so that they can be reelected.

The republicans say “No New Taxes” and you are against it since the rich have too much. The democrats say more and more taxes
and you support this. What I don’t understand is why you believe that the current crop of politicians would ever vote for a tax increase that would personally hurt themselves? Those thousands and thousands of pages of tax regulations need to be changed and nothing convinces me that this is going to happen. So it comes down to trust and I don’t trust the government with any new taxes even from the very rich. When all is said and done it seems that each new tax ends up costing the middle and lower classes more than the upper crust (due to tax loopholes).

And NaluGirl, the theory was that sequestration would force the congress to get serious on the budget and it was proposed by the President. Like most things in Washington it didn’t work! And those Bible people you talk about that are Republican spend more of their own money helping the poor than do most Democrats. Anyone that follows the Bible doesn’t throw rocks at the gay, abortion rights people, etc. since we know we are sinners just like them. That doesn’t change our belief in Biblical truths. The only reason this should ever be included in a financial discussion is because our personal beliefs influence our financial decisions and how we vote politically, so lets stop throwing verbal rocks at each other.

Bob, I think you are misinterpreting what I am trying to say. First of all, I did not say anything about the sequestration. Second I am not saying anything against Christians per se, what I am saying is that the oligarchs are using Social Calvinsim to convince believers that they deserve their riches, no matter how they were acquired. Third, there is, as far as I know, no empirical evidence as to which group gives more to charity. I would say that a lot of people, for example Mitt Romney, say they are giving to charity, when what they are actually doing is tithing to their church.

Nalugirl asks, “what is you take on the situation in Cypress? Many of the blogs I am reading are saying that it’s the end of the banking system as we know it.”

Well, even if the tax on bank savings is never implemented, even the suggestion of it has to have put a shudder into every bank saver in the Euro zone. As for affecting the US, I think that so far the people in the US don’t feel this applies here. And it probably doesn’t since we control our own currency, and if we ever had to we could just downgrade our currency (inflation) and have the same effect without risking mass rebellion (run on the banks) by bank savers.

Bob Arkell says, “why would anyone believe that the current millionaires of BOTH parties would change the code so that they have less wealth.”

They will change the code when either 1) there are mass riots in the streets led by a charismatic leader, or 2) the people finally get fed up and vote out of office all those who are against changing the tax code back (including closing tax loopholes) to what it was perhaps thirty years ago.

Check out How America gives by Chronicle of Philanthropy and Arthur Brooks book “Who Really Cares”. A true conservative gives because he believes that it is his responsibility. ie. less government & biblically helping the poor. Whereas, the liberal seems to believe that is the responsibility of a bigger government.

Warren,

Certainly the increased gun sales support the belief of many that there will be riots in the streets. No one can question that the morality has changed dramatically in the last 50 years. I have historically found no civilization that survived after leaving the beliefs underpinning their civilization. The voters now believe they have a right to others money and hard work. Free phones, companies too big to fail, free health care, free day care, etc. If this is taken away for any reason (like in Cyprus or Greece) surely we will have riots in the streets.

You have convinced me that the wealth is skewed. But I don’t see the Democrats or Republicans doing anything to balance the scales. And the greed morality by many businesses and voters will not help the differences. Because I am responsible for what I do to God I pay my employees a fair wage. At one time many believed to do that, (not all), but times have changed. There are no absolutes and many believe he who dies with the most toys wins.

I read your blog because I know you are a fair and caring person. And I’ve learned from your insight.

Bob Arkell says, “Certainly the increased gun sales support the belief of many that there will be riots in the streets.”

Don’t misread that. If you check the data, the percentage of US households with guns has been going down over the years, not up. It is just that those who love guns are acquiring more – the last data I saw indicated that the average gun owner has almost nine guns. Those gun owners are very motivated and protective of what they perceive of as their second amendment rights, so they are very vocal and active through the NRA. Of course, anyone actually analyzing available data can see that most of their arguments in favor of guns don’t hold up when examined critically, but that doesn’t dampen their enthusiasm. Just don’t misread it as some indication that higher gun sales indicate that a higher proportion of our citizens are getting ready to riot.

Mr. Arkell also says, “No one can question that the morality has changed dramatically in the last 50 years….The voters now believe they have a right to others money and hard work. Free phones, companies too big to fail, free health care, free day care, etc.”

I don’t see how you get to your conclusion that the growing wealth disparity is somehow caused by people believing that they “have a right to others money and hard work.” Aren’t you blaming the victims? Isn’t the only thing the general population is asking is a return to the tax structure that was in the US thirty years ago, with the resultant spread of wealth that was in effect at that time? It seems to me that the only morality change that has occurred has been in the wealthy few with their growing greed. Almost all studies show that the general workforce is working harder than ever and are more efficient. It is just that the average person is seeing none of the gains from their hard work!

Interesting how we can agree and disagree on the same information. The numbers of those getting disability from social security keeps going up and up. Food stamps are at an all time high. Due to the current system couples don’t get married so that food stamps and other benefits are not cancelled. Surely you recognize that the babies born out of wedlock have gone up and up and the system encourages this. Many are abusing the system since it rewards them for doing so.

Yes, those working are not getting a fair share of the profits. The key is working. When we go out to eat we make sure to tip highly for good service. No one waits on tables to get rich. You want to have the rich pay a higher share than now. I would argue that the ones who clip coupons should pay more than those who are still providing work for others. I see a difference between Buffet and Jobs and would tax accordingly.

If we can find no way to compromise why do we believe that the rich politicans will change the system. It is easier to give freebies than to correct the problems. I can agree that the rich need to pay more, but which rich and how would it be structured. Just returning back 30 years will not result in different results than 30 years ago.

Bob Arkell says, “Surely you recognize that the babies born out of wedlock have gone up and up and the system encourages this. Many are abusing the system since it rewards them for doing so.”

Note the excerpt from the following article, Brookings Policy Brief Series, August 1996, An Analysis of Out-Of-Wedlock Births in the United States, by: George A. Akerlof and Janet L. Yellen.

“…welfare benefits could not have played a major role in the rise of out-of-wedlock births because benefits rose sharply in the 1960s and then fell in the 1970s and 1980s, when out-of-wedlock births rose most. A study by Robert Moffitt in 1992 also found that welfare benefits can account for only a small fraction of the rise in the out-of-wedlock birth ratio.”

In 1964 when the War on Poverty was initiated 6% of children were born out of wedlock. In 2010, 40.8% were born out of wedlock. This change was encouraged by government policies. Surely you agree that the War on Poverty has failed. We have more on poverty now. The biggest reasons for poverty are single parents and lower education.

Currently the Supreme Court is deciding if gays can marry. The current welfare rules penalize those who are currently on welfare and then marry. There was a marriage penalty in the tax code. The government is not encouaging marriage. You are arguing that the government policies do not influence the out of wedlock results?
These feel good policies do not work!

How about vouchers for all. That way parents could decide what was best for their chidren and competition would improve educating the kids. Parents in DC obviously saw the advantage of vouchers.
And for those who work full time or are available to work full time increase the tax credits.

Require programs to stand on their own. If there are not objective results get rid of the program (sunshine rules). Rarely do the Department of Labor training programs result in someone going back to work. (Yes, this is from personal experience having been the Manager of the Peoria Unemployment office for 25 years)

Why do you believe that government works? The ones who benefited most from the War on Poverty were the government employees. If the money over the last 50 years had been given directly to the poor we wouldn’t have any poor left. Look I agree that it is not working correctly where we differ is in how to correct the problems. Why did you ignore my belief that the key is work?
Tax higher those who are clipping coupons like Buffet not those providing jobs like Steve Jobs. Have policies that encourage marriage and give the gays the government benefits but don’t damage the concept of traditional marriage.

Surely you will find a part that you can nit pick in my arguments.
Please respond to the overall.

Would you change who of the rich gets higher taxes?
Would you put in policies like vouchers to improve the education of the children?
Do you support traditional marriage?

Obviously we disagree are there areas in which we can compromise? No wonder it is so disfunctional in Washington.

Bob Arkell says, “Surely you will find a part that you can nit pick in my arguments.
Please respond to the overall. “

I can find things about the poverty programs and welfare programs that irritate me. I can find lazy poor people who don’t work that irritate me. I can find hypocritical religious people that irritate me. I can find people who drive too fast, teenagers that wear their pants below their asses, old people that think the world owes them something because they managed to live too long, and all sorts of other people whose beliefs and actions irritate me. But I can stand back and pretty much put all those people in perspective as “just being people.”

But for wealthy and powerful people who have accumulated an immoral (based on historical standards) and disproportional amount of wealth, and are now using that power to accumulate even more wealth, I can find no reason not to go after them. THAT IS WHERE YOU AND I DIFFER! Many of the poor and uneducated have few realistic options. Many come from environments that have not given them a realistic chance to escape (okay here is where YOU must not nit-pick me by listing the few that DO escape.)

But the wealthy can give up huge amounts of their wealth to help those in need and still live like the rich did thirty years ago. THAT IS A REALISTIC OPTION, and if they don’t make that choice on their own, through agreeing to a fairer tax structure, then we should force those changes on them.

You see, I hold the educated, the powerful, and the rich more accountable than the poor, because the rich can do so much so easily if they would only decide to. You hold the poor more accountable. You want the poor to somehow rise magically above their current status. Your approach has zero chance of happening; my approach will probably happen because the common man will eventually force the humbling of the excessively rich and powerful.

I have been a bit confused since Jan 2013 with regards to where I should put my money. Is the stock market safe? The fed has been pumping $$$ and I have been waiting for the market to crash. Nothing yet. I would love to know your thoughts on this. If you have already answered this question then I apologize in advanceThanks

Thanks for the reply. I can agree the rich have too much of the pie.
I can find no historical example of the poor rising up and then having circumstances better in the long run than before. Most advocate socialism or communism as more equal systems but so far they have not been better. Ayn Rand argues in her book on Capitalism that if left politically alone the system would correct itself.
But as long as the politicans can feather their nests while being in power I don’t see them doing this. It seems to me that Democrats see the world through rose colored glasses. That they really care and trully believe that what they legislate makes the population better. But once a program is started it is amost impossible for it to cease no matter if it works or not.

As a Republican I too would like to help the poor. But how has the War on Poverty worked? Fifty years and still no difference on the number of poor. Head start is wonderful in theory but by high school when so many drop out it seems to make little difference.The answer for education as it is for health care is spend more money so tax the rich. I would like to see some results.

People are willing to sacrifice if they can see change for the better. But there needs to be accountability and objective success. Probably you will get your wish of higher taxes on some of the rich.
The ones with the correct political connections will just get richer.
And there are certainly as many rich Democrats as Republicans.

Maybe our differences are I’m pessimistic and you are obtimistic.
Either way I appreciate your time and expertise.

Jay Tucker says, “I have been a bit confused since Jan 2013 with regards to where I should put my money. Is the stock market safe?…Or should I say, has your opinion changed from your comments in Feb?

I have no idea where anyone should put their money. I have some in TIP, some in cash, and I own some stock in a company that will likely be positively affected by the shale oil being developed. I would think that if someone is willing to do some investigation and take some risk, betting on our coming energy independence may be a good investment. Some of these stocks could have relatively quick gains because not everyone has bought into this concept of energy independence, and the prices of these stocks may shoot up if this energy find proves to be real and long-term.

When I last commented, at the end of January when you were considering ‘retiring’ from the blog commentaries, I suggested there was endless ‘fun; to be had analysing the Eurozone. Less than two months later we have seen the EU, together with the IMF, imposing a settlement on Cyprus that, according to the most recent reports, suggest that up to 100% of deposits over 100,000 Euros at the Bank of Cyprus and others, will be lost to depositors.

Businesses in Cyprus are going bust on a grand scale (of course) but evidence is now emerging of some people having been ‘tipped off’ in advance and, even during the bank closure period, managed to get their deposits out of the banks. Others connected to the government have apparently had large debts ‘cancelled’ in the recent past.

This situation sits full square with your comment, except that in this case, it’s the entrepreneurs, wealth creators and small businesses that have been trashed.

The knock-on from this will be profound, and certainly has the capacity to reach the U.S. banking system.

No-one knows whether this Cyprus ‘template’ will be applied to other countries such as Italy or Spain, but if it was, I’m sure you can imagine the outcome in those countries, drones or no drones.

The Cyprus banking debacle is a game-changer, even though Cyrus is tiny. No-one in the right mind is going to leave deposits over the 100,000 Euros guarantee amount in any European bank from now on. Where the cash flows will go to now is anyone’s guess, but move they will, possibly out of Europe altogether. The global banking system just entered unchartered territory.

I think it’s time for you to consider writing a successor book to The Second Great Depression. It seems to me that the really big crisis is still ahead of us. The big revolutions of the last two centuries, like the French Revolution, were of course borne out of financial crisis that filtered down to the masses.

Essentially this discusses using deposit protection funds in a UK or US bank in financial distress in order to restructure the bank. Funds in excess of the guarantee level (100,000 £ / $ ) can be converted into shares in the bank (as has happened in Cyprus) although of course what they will be worth in the short-term would be anyone’s guess.

The fact that this paper exists and ties in the EU, UK and US suggests that TPTB suspect that this eventuality may come to pass.

Mark D Says: “I have just discovered this paper:http://www.fdic.gov/about/srac/2012/gsifi.pdf. Essentially this discusses using deposit protection funds in a UK or US bank in financial distress in order to restructure the bank. Funds in excess of the guarantee level (100,000 £ / $ ) can be converted into shares in the bank.

The paper refers to “unsecured creditors.” I don’t believe that would include savers, because the savers did not “loan” the money to the bank. “Unsecured creditors” would apply to companies who perhaps had people working at the bank doing maintenance who had not yet been paid.

Mark D says, “Savers certainly have loaned the money to the banks and they are indeed unsecured creditors.”

Mark, I checked and you are right. But, one thing I think I learned from the recent crises is that the US will NOT let large banks fail, at least to the point that savers lose their money. Versus Cypress, the US can print as many dollars as it wants to cover any bank losses. As bad as this may seem as far as feeding inflation, I would think that this step would be taken with no hesitation rather than risking the alternatives of 1) runs on all US banks, and 2) loss in faith/trust of all savers, causing people to withdraw all their money and put it under their mattresses or buy gold.

Hopefully, at least if such a large bank failure occurs, this time bank managers will be held accountable (fired or thrown in jail) and bank shareholders will be decimated.

Albert asks: “What do you think of Harry Dent’s prediction of Dow 3,300 and a crash by Fall 2013?”

I don’t see it. A Dow of 3,300 requires a 78% drop, which is far greater than the 66% drop to get to the P/D ratio I would look for to get back into the market. If the government does not somehow reverse the current across-the-board cuts in spending, I do expect the US to drift back into a recession with some substantial drop in the stock market. But these across-the-board cuts will mostly affect the middle and lower classes, and therefore won’t cause panic selling of the market by the “haves.” We could see a market drop, but I don’t see a 78% drop.